Solar energy is no longer for hippies and daydreamers—it’s come to the fore and it can make you/save you some serious money. My previous post detailed the background on solar panels in the DC area, but this one’s mostly about the cash.
To recap the background, the average cost of installed solar photovoltaic capacity in America is $3.48 per watt by the end of last year. Costs are down over 10% from the year before, which has pretty much been the trend for several years now. That average is after all the state and federal incentives, which vary greatly and we’ll detail below.
In the DC metropolitan area, the average kilowatt of installed capacity produces approximately 1,170 kWh a year, depending on exactly where you live and several other key variables. In 2013, the average American used 10,908 kWh, which means it’s perhaps a bit higher this year. That means that to cover all your energy needs, the average household would need about 10 kWh of installed capacity. It’s important to look at your family’s annual energy use for a few years to understand your exact needs.
Most installations are between 1 and 5 kWh—and often for good reason. First they’re big—about 72 sq. ft. per installed kilowatt. Second, some states have decided that net metering can only be credited, and not cashed out. So if you produce more than what you use throughout the year, you’ve lost that difference. But more on policies that affect your bottom line later.
As for the money, there are currently state and national financial incentives to build solar panels. Some of them only last a few more years, so if you want to save/make the most money possible, get in while the getting’s good.
The first incentive is a national Investment Tax Credit (ITC), which is a nonrefundable personal tax worth 30% of “Qualified Expenditures.” That term usually covers all equipment and installation directly related to the solar panels. Specifically, Section § 25D of the IRS Tax Code says that that you can include “the expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the qualified property and for piping or wiring to interconnect the qualifying property to the home.”
Now if you had gotten in pre-2013, this was a refundable tax credit, which means it would have been cash in your pocket, no matter your liabilities. But, if you happen to have tax liabilities that you can get rid of, this can be a money-maker.
In addition to the cost savings (which depend on how much electricity costs in your area), DC and Virginia also have mandated Solar Renewable Energy Credits (aka solar carve-out for Renewable Energy Credits). RECs are valued by what a utility is willing to pay to offset what they can’t directly produce in renewables. In DC, for instance, there’s not a lot of extra land for wind or solar farms! But because the price is subject to supply and demand, it can only be estimated unless there’s a set price (like in Maryland). A SREC is equivalent to 1,000 kWh of solar-produced electricity, so a system that produces about 6,000 kWh a year will give you 6 SRECs to sell back to the utility.
Of the three state jurisdictions in the DC metro area, the District itself is more friendly to solar photovoltaic electricity. According to SolarPowerRocks.com, DC offers some of the best solar incentives in the country, and the website gives them an “A” for total performance. The website uses a 5 kWh system to estimate payback costs, which I’ve used here.
According to the national average, the system would cost around $17,400 after incentives and the like. This website uses estimates in the DC area based on an initial installed cost of $25,000 for a 5 kWh system to calculate the final, post-incentive costs and the pay-back period. Keep in mind that you’ve got to get your own personalized estimate to know for sure. Just like you are an individual snowflake that deserves special attention (if you’re not a millennial, nevermind), so is your roof. Each has different pitch, size, limitations, materials and foliage cover.
In DC, there is a rebate (that you have to apply for) from the District for $2,500, bringing it down to $22,500. The 30% ITC, which is calculated after state rebates, gets initial costs down to $15,750. The SRECs in DC currently run about $480, and have an effective cap around $500. A 5 kWh system would produce just under 6,000 kWh a year, or about 6 SRECs worth $2880. Your energy savings in DC are $829.
Between the savings and the SRECs, you’d have an incredible 5-year pay-back period for a system that should last at least 20 years. SolarPowerRocks.com estimates that even if the SREC value plummets, it would still be 7 or 8 years. Because of the quick pay-back, total earnings after that are estimated at $88,551.
The other regional rockstar for energy savings from solar is in Maryland. There’s a $1,000 rebate from the state, and after the 30% Federal ITC, your installation costs for a 5 kWh system are around $16,800. The estimated SREC is $132, or about $792 per year. Along with a $761 estimated electricity cost savings, it would take about 10 years to pay-back the system.
Though SolarPowerRocks.com gives Virginia an “F” for solar power incentives and an 18-year pay-back period, it would still produce you an estimated income of $9,843 over the lifetime of the system. The ITC credit means that a $25,000 system would cost you $17,500 up front, though after those 18 years, again, it would just be paying you back.
Each of these scenarios and states are estimates to give you an idea of how much money you can save over the long run. In addition, the value of your house will appreciate—again, that depends on the neighborhood, the value pre-installation and several other factors. There are also other ways of financing your solar panels in the DC area, but we’ll have to leave that discussion for another day.